Despite economic headwinds in the global economy the Canadian manufacturing sector continued to expand in October, though the rate of growth has slowed somewhat, according to the RBC Canadian Manufacturing Purchasing Managers Index.

The monthly survey shows that both output and new orders continued to increase solidly. The RBC PMI found that Canadian manufacturing business conditions improved in October, with firms generally attributing higher output and new orders to greater demand and new client wins.

The headline RBC PMI – a composite indicator designed to provide a single-figure snapshot of the health of the manufacturing sector – posted 53.7 in October, which is down from 55.0 in September and marks a three-month low. Index readings above 50.0 signal expansion from the previous month, readings below 50.0 indicate contraction.

The survey, conducted in association with Markit, a leading global financial information services company and the Purchasing Management Association of Canada (PMAC), offers a comprehensive and early indicator of trends in the Canadian manufacturing sector. It tracks changes in output, new orders, employment, inventories, prices and supplier delivery times.

“The Canadian manufacturing sector has been weathering external macro events and market conditions reasonably well, and we expect to see modest economic growth for the remainder of the year,” said Craig Wright, chief economist for RBC. “It is encouraging to see the RBC PMI holding its ground, particularly in light of softening manufacturing conditions in other corners of the globe.”

Key findings from the October survey include:

– Incoming new work and production both increase solidly, albeit at a weaker pace

– Rate of job creation eases since September

– Inflationary pressures weaken further

– Firms generally linked the improvement in business conditions to new order growth in October. Incoming new work rose solidly, with almost 30 per cent of monitored companies registering larger new order volumes compared with September. Nonetheless, the rate of growth was the weakest since July, as new export orders fell modestly in October.

Canadian manufacturers raised production during the latest survey period, as has been the case since the start of data collection in October 2010. Output increased robustly, but at a slower pace than in September. Backlogs of work fell modestly in October. Stocks of finished goods were reduced further, in some cases to meet higher new order requirements.

Reflective of higher output levels, the amount of inputs purchased in October increased. Surveyed firms also depleted input inventories for the second successive month, with a number of respondents citing leaner stock holding policies.

Subsequently, suppliers’ delivery times lengthened further in October, as input demand strengthened. That said, the latest increase in lead times was the weakest in the 13-month series history.

Employment in Canada’s manufacturing sector rose further during the latest survey period. Approximately 22 per cent of survey respondents raised staffing levels, while 14 per cent reduced headcounts. Overall, the rate of job creation was solid, but slower than that registered in September.

Higher input costs were recorded by Canadian manufacturing companies in October. Fuel and raw materials such as metals were particularly mentioned as having increased in price. Although the rate of input price inflation remained solid, it continued to ease sharply from April’s peak. Firms generally passed on greater cost burdens to clients by raising their selling prices. Output charges rose only modestly, however.

Regional highlights include:

Regional PMI data signalled improvement in manufacturing business conditions across all four broad Canadian regions in October. Alberta & British Columbia continued to lead the latest expansion.

Moreover, Alberta & British Columbia registered the fastest rate of new order growth.

Three out of the four broad regions reported job creation in October. The only exception was Quebec.

The fastest rate of input price inflation was recorded in Alberta & British Columbia.

“The Canadian manufacturing sector continued to grow solidly in October, albeit at a weaker pace” said Cheryl Paradowski, CEO of PMAC. “The volume of new work intakes received by Canadian manufacturers rose at the slowest rate in three months, with a fall in new export orders being a key contributor. Although both output and employment growth also eased during October, the rate of input price inflation slowed further from April’s peak, thus alleviating some pressure on manufacturers’ cost burdens.”

Markham began his journalism career writing columns in the mid-1980s for Western People Magazine, then reported for a small Saskatchewan daily. He has spent most of his career in media and communications, likes to dabble in politics, was actively involved in economic development for many years, thinks that what goes on in the community is just as important as what happens provincially and nationally, and has a soft spot for small business (big business, not so much). Markham is a bit of a contrarian and usually has a unique take on the events of the day.